Bank accounts of cash transfer beneficiaries will be directly credited using Aadhaar-based identification. Photo: Hindustan Times

Updated: Sat, Dec 22 2012. 01 12 AM IST

New Delhi: A day after Prime Minister Manmohan Singh presided over the first meeting of the national committee on cash transfers on 26 November, Nandan Nilekani, who is credited with conceiving the idea of delivering government subsidies through the unique identity, or Aadhaar, project he is spearheading, was asked to explain the merits of the proposed system to the nation on television.

But the job of promoting the scheme was soon taken over by the ruling Congress party. Finance minister P. Chidambaram and rural development minister Jairam Ramesh addressed a press conference on the subject from the party headquarters on 27 November.

The change of personae was symbolic of how the scope of cash transfers has expanded over the last two months—from being an extension of the UID (unique ID) project to a “game-changer” that has become the Congress-led United Progressive Alliance’s biggest electoral plank ahead of the next general election in 2014.

“The government needed political energy, an agenda to shake off the policy paralysis,” a government official said about the move. He declined to be named.

The UPA government plans to make direct cash transfers to beneficiaries of welfare schemes, including pensions and scholarships, in 43 districts starting on 1 January. Bank accounts of beneficiaries will be directly credited using Aadhaar-based identification under the plan, which will eventually cover the entire nation.

Direct cash transfers bypassing bureaucratic channels have emerged as the government’s biggest policy initiative in a country where subsidies and benefits under various welfare programmes amount to almost Rs.3 trillion, roughly 3.5% of India’s gross domestic product (GDP).

Other big-ticket policy reforms such as the Land Acquisition Bill or the Food Security Act that have a direct impact on the lives of the people are stuck in the legislative machinery of Parliament and can’t be implemented quickly, said a senior Cabinet minister who didn’t want to be named. Cash transfers don’t require Parliamentary approval.

“This is a scheme on which the government and the party are on the same page,” the minister said. “Cash transfer has a direct impact on the common man, is seen as anti-corruption and the pending UID legislation is not stopping it from being rolled out.”

With the Prime Minister’s Office (PMO) driving the mandate (there have been eight press notes issued by the government over the last two months on cash transfers), the bureaucratic machinery is working overtime to digitize databases, generate Aadhaar numbers and open bank accounts (40% of the country’s population is still unbanked).

Yet, the speed at which the government is moving to implement cash transfers is raising concern among some government officials and experts that the programme may get off the ground without a sufficiently strong and sound foundation, undermining its potential to deliver significant benefits. Many are concerned that the timelines are too ambitious.

For instance, The Times of India has reported payment delays under a pilot programme in which cash is transferred to a person’s account in place of the kerosene subsidy in Kotkasim, Rajasthan.

“If it is too fast and hurried, due process is not followed and the scheme is half-baked then it will come to bite the government at the end,” admitted the minister cited above. “If there are thousands of scenarios like the one in Kotkasim, then all bets are off.”

The disruptive potential of Aadhaar is much greater than its potential for enhancing the concept of financial inclusion, said economist and social activist Reetika Khera.

“An old woman who currently gets her Rs.200 per month pension today may be denied this if she fails to do the required paperwork for getting her UID number and having it linked to her bank account,” said Khera, also assistant professor at the Indian Institute of Technology, New Delhi.

The cash transfers initiative requires an unprecedented level of coordination among several central government departments and states along with the Unique Identification Authority of India (UIDAI) headed by Nilekani—an agency that has faced resistance from other arms of the same government.

“Sure, there has been a lot of infighting over UID—there are many who feel insecure and threatened by it—but there is also a large constituency which supports it,” the cabinet minister quoted above said.

There has been a sea change in the attitude of officials from various government departments since the first meeting of the executive committee of cash transfers in November, said the government official quoted above.

Finance minister Chidambaram himself is a new convert to the central nature of UID to government policy. Previously, as home minister, he wasn’t too comfortable with the idea that it would assume the nature of a national identity card and the security implications of that.

“From asking philosophical questions about whether implementing cash transfers is right for the country or not, the focus has now shifted to identifying issues for its implementation,” said the government official. And there are many of them. According to the minutes of the first executive committee meeting, of which Mint has a copy, three issues have been identified as challenging—ensuring at least 80% Aadhaar penetration in districts where cash transfers have to be rolled out; digitizing databases of beneficiaries (so far stored in dog-eared government files); and opening bank accounts.

While pensions and scholarships given by the ministries of social justice and empowerment, human resource development (HRD), minority affairs, health and family welfare, labour and employment have been short-listed for cash transfers initially, the government is also considering inclusion of cooking gas and kerosene subsidies under the public distribution system (PDS) and targeted PDS in union territories.

A finance ministry official said that the challenge will be in ensuring coverage of the large population by banks through so-called business correspondents who will help deliver cash transfers. A petroleum ministry official said that even though the ministry is ready for direct cash transfers of both cooking gas and PDS kerosene subsidies, the roll-out depends on the preparedness of the state governments.

A human resource development (HRD) ministry official said digitization will take time and one month may be too short for completing the process before the start of cash transfers.

The education system has over 230 million children in schools and more than 20 million in higher education and targeted intervention through Aadhaar requires a robust digital central data point, said the HRD official mentioned above.

“You need some five to six months time to make visible progress. Anything less than that may lead to too much, too early,” a second HRD official said.

The administrative capabilities of states such as Uttar Pradesh and Bihar have not been factored in as the government pushes to implement cash transfers, said Rama Baru, a public health expert at Jawaharlal Nehru University. “Schemes like National Rural Health Mission indicate the level of administrative dysfunction in the state,” she said referring to the state of Uttar Pradesh where investigations are ongoing for misappropriation of central funds to the state government under the scheme.

A government official familiar with UIDAI’s enrolment plans said that out of the 51 districts where cash transfers were supposed to be rolled out in January earlier, 15 had exceeded 80% enrolment and another 17 are close to the mark. The number of districts has been reduced to 43 now.

However, Aadhaar penetration in around 10 districts is very low because of the poor enrolment effort, the same official said. The solution may be targeted enrolment of people who are beneficiaries in some government welfare scheme in these 51 districts as well as in the 18 states where the scheme is set to begin in April.

“Let’s not fool ourselves into believing that the entire 60 crore population in the 18 states will be covered by April,” the official said.

The official added that the enrolment camps have to be planned to focus on targeted beneficiaries. That may result in altering the objective of the UID scheme, which is meant to cover the entire nation by providing a unique identity number to every resident of India and issue at least 600 million by 2014.

The minister cited above agreed that several beneficiaries could be excluded because of the rush to meet the deadline for direct cash transfers.

As per the plan, there will be simultaneous digitization of the list of beneficiaries by the states and their inclusion in the Aadhaar database. After the Aadhaar numbers are generated, either new bank accounts will be opened or existing ones will be linked to the numbers for the payment to be credited directly to the accounts.

The government official cited in the first instance conceded that some short-cuts may be adopted and even some glaring errors made in the initial stages of the scramble to meet deadlines.

“Yes, there will be complete mayhem and lots of bad press in the beginning,” the official said. “There will be many people who will be left out. But if you take a bird’s eye view of the situation, it can only get better from what it is now. Every person who was not getting the money earlier and starts getting it now may just thank the government with a vote.”